Congress’ 2005 bankruptcy reforms targeted consumer debtors, ostensibly making it more difficult for those struggling with debt to walk away from credit card bills, car loans and other such consumer debts. The idea was to prevent people of means from running up debt they can’t pay then walking away.
The reforms set an income threshold. Those who earned less than that amount could continue in many cases to completely discharge consumer debt. There was more, though. Those who earn more than the regional median family income had another way qualify: The Chapter 7 means test.
Chapter 7 Test Assesses Financial Means
The Chapter 7 income threshold doesn’t strictly limit bankruptcy filings to only those with below-average income. Those with incomes at or above median income for their geographic area must prove they are eligible based on the Chapter 7 test – a means test that balances income and expenses. A debtor with a four-person family in Oklahoma with a family income of more than about $63,069 annually must complete the means test to qualify for Chapter 7. The means test allows some high-income debtors to file Chapter 7 when faced with certain expenses.
That’s where the bankruptcy code gets a bit complex. Congress intended to make it more difficult to walk away from consumer debt – which includes debt incurred for family, household or personal purposes – but provides room in the means test to deduct necessary living expenses. That can include housing costs and transportation costs, which of course can be mortgage payments and motor-vehicle loan payments.
Payments for secured debt, including mortgages and car loans, can be deducted from income in the Chapter 7 test. Unpaid tax debt, delinquent alimony payments and back child support amounts can also be deducted from income for Chapter 7 means test purposes. Social Security benefits are exempt from income amounts reported in the Chapter 7 test.
If you’re struggling with debt you can’t pay, you may have alternatives. You may be able to keep your home and your car while you discharge mountains of debt that is the cause of nagging worries and endless collection calls. That’s why it’s important to retain a qualified Oklahoma bankruptcy attorney when you are considering options for debt relief. Even if you bring home an above average income, you may be eligible for debt relief.
As the national economy slowly recovers from the recent severe recession, the number of families or individuals who file for bankruptcy each year has peaked and recently began to decline. Yet tens of thousands of families are still struggling with underwater mortgages, reduced income and debts they can’t pay. For many, the damage has been done and there’s little more for them to lose. Yet some bankruptcy attorneys report that the average income of their bankruptcy clients has climbed during the recession. Clients with above average income are sometimes able to file for Chapter 7 bankruptcy because of the way their debts are structured. The Chapter 7 test can determine whether a bankruptcy court is likely to conclude you lack the means to meet creditors’ demands.
If you are considering filing Chapter 7 bankruptcy, or think a Chapter 7 filing may be an option for you sometime in the future, contact a Oklahoma City bankruptcy attorney today. Because the means test relies on reports of your most recent 6-month income and other living expenses, when you file and the structure of your debts at the time you file can be important. A qualified Oklahoma debt relief attorney can help you determine when and if Chapter 7 bankruptcy may be the best option for you. And even if your income and debts don’t qualify you for bankruptcy under the Chapter 7 means test, you may still be able to restructure your debt under a Chapter 13 bankruptcy filing.
Free Consultation: Oklahoma City Bankruptcy Attorney
For a free confidential consultation with an Oklahoma City bankruptcy lawyer and to see where you come out in a Chapter 7 test, contact the Debt Line Law Office today at (918) 878-0010 or toll free at (405) 563-7888 .